<PAGE>

                                  FORM 10-Q
                      SECURITIES AND EXCHANGE COMMISSION
                             Washington, DC 20549

          [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                For the quarterly period ended January 29, 1999
                                               ----------------

                                      OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

          For the transition period from ____________ to____________

                       Commission File Number -   1-6797
                                                ----------


                            TEXFI INDUSTRIES, INC.
            ------------------------------------------------------
            (Exact name of registrant as specified in its charter)


          Delaware                            56-0795032
-------------------------------         ------------------------
(State or other jurisdiction of            (I.R.S. Employer
incorporation or organization)             Identification No.)


              1430 Broadway, 13th Floor, New York, New York 10018
              ---------------------------------------------------
                  (Address of principal executive offices)
                                  (ZIP Code)

                                (212) 930-7200
             ----------------------------------------------------
             (Registrant's telephone number, including area code)


                 Number of shares of Common Stock outstanding
                         at ______________-  8,859,098
                                             ----------


Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes  X   No
                                       -----   -----
<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------

                         QUARTERLY REPORT ON FORM 10-Q
                         -----------------------------
                    FOR THE QUARTER ENDED JANUARY 29, 1999
                    --------------------------------------
                        PART I - FINANCIAL INFORMATION
                        ------------------------------

Item 1.  Consolidated Financial Statements

  Texfi Industries, Inc. (the Company") has prepared the consolidated financial
statements included herein, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission.  The consolidated balance sheet as of
October 30, 1998 has been taken from the audited financial statements as of that
date.  Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes that the disclosures are adequate to make the information
presented not misleading.  It is suggested that these consolidated financial
statements be read in conjunction with the consolidated financial statements and
notes thereto included in the Company's latest Annual Report on Form 10-K.

  The consolidated financial statements included herein reflect all adjustments
(none of which are other than normal recurring accruals) which are, in the
opinion of management, necessary for a fair presentation of the information
included.  Operating results for the thirteen-week period ended January 29, 1999
are not necessarily indicative of the results that may be expected for the year
ended October 29, 1999.  The following consolidated financial statements are
included:

     Consolidated Statements of Income for the thirteen weeks ended January 29,
     1999 and January 30, 1998

     Consolidated Balance Sheets as of January 29, 1999 and October 30, 1998

     Consolidated Statements of Cash Flows for the thirteen weeks ended January
     29, 1999 and January 30, 1998

     Condensed Notes to Consolidated Financial Statements

2
<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------

                CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED
           Thirteen Weeks Ended January 29, 1999 and January 30, 1998
    (Dollar amounts in thousands except number of shares and per share data)



<TABLE>
<CAPTION>
                                                               1999                    1998
                                                      ------------------------------------------
<S>                                                      <C>                      <C>
Net sales                                                $   27,192               $   41,776

Cost and expenses:
 Cost of goods sold                                          25,225                   36,494
 Selling, general and administrative                          2,347                    2,872
                                                      ------------------------------------------
Total                                                        27,572                   39,366

Operating (loss) income                                        (380)                   2,410

Other expense (income):
 Interest                                                     2,220                    2,154
 Impairment loss on joint venture                                 -                    1,154
 Other, net                                                       -                       (1)
                                                      ------------------------------------------
Total                                                         2,220                    3,307

Net loss                                                 $   (2,600)              $     (897)
                                                      ==========================================

Weighted average number of shares                         8,859,098                8,859,098
                                                      ==========================================

Basic and diluted net loss per share                          $(.29)                   $(.10)
                                                      ==========================================
</TABLE>


See condensed notes to consolidated financial statements.

3
<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------

                          CONSOLIDATED BALANCE SHEETS
                     January 29, 1999 and October 30, 1998
                         (Dollar amounts in thousands)

<TABLE>
<CAPTION>
                                                                    1999                      1998
                                                                 (Unaudited)
                                                           ----------------------------------------
<S>                                                              <C>                       <C>
Assets
Current assets:
 Cash and cash equivalents                                          $    211               $    162
 Receivables:
  Due from factor                                                     17,764                 22,530
  Trade, less allowances                                               4,862                  7,829
  Other                                                                   93                     85
 Inventories                                                          11,548                 13,346
 Prepaid expenses                                                        966                    964
                                                           ----------------------------------------
Total current assets                                                  35,444                 44,916

Property, plant and equipment - net                                   23,878                 24,882
Property, plant and equipment held for disposal-net
                                                                         351                    368
Other assets                                                           1,811                  1,686
                                                           ----------------------------------------

Total assets                                                        $ 61,484               $ 71,852
                                                           ========================================

Liabilities and shareholders' deficit
Current liabilities:
 Current maturities of long-term debt                               $  1,200               $  1,200
 Current maturities of subordinated debentures                        34,371                 34,371
 Accounts payable                                                     20,427                 22,503
 Other liabilities                                                     4,195                  3,833
                                                           ----------------------------------------
Total current liabilities                                             60,193                 61,907

Revolving credit line                                                 19,306                 25,144
Long-term debt                                                        11,563                 11,766
Subordinated debentures                                                2,354                  2,354
Other long-term obligations                                              179                    192
                                                           ----------------------------------------
Total liabilities                                                     93,595                101,363

Shareholders' deficit:
 Common stock, $1.00 par value                                         8,859                  8,859
 Additional paid-in capital                                           25,534                 25,534
 Accumulated deficit                                                 (66,504)               (63,904)
                                                           ----------------------------------------
Total shareholders' deficit                                          (32,111)               (29,511)
                                                           ----------------------------------------

Total liabilities and shareholders' deficit                         $ 61,484               $ 71,852
                                                           ========================================
</TABLE>

See condensed notes to consolidated financial statements.

4
<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------

           Thirteen Weeks Ended January 29, 1999 and January 30, 1998
                CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED
                         (Dollar Amounts in thousands)

<TABLE>
<CAPTION>
                                                                               1999                  1998
                                                                     ------------------------------------------
<S>                                                                         <C>                   <C>
Operating activities
Net loss                                                                    $(2,600)              $  (897)
Adjustments to reconcile net loss to net cash provided by
 operating activities:
  Impairment loss on joint venture                                                -                 1,154
  Depreciation and amortization                                               1,199                 1,438
  Provision for losses on accounts receivable
                                                                                (45)                    -
  Gain on disposition of property, plant and equipment
                                                                                 (1)                   (1)
  Change in operating assets and liabilities:
     Receivables                                                              7,770                 8,140
     Inventories                                                              1,798                 1,063
     Prepaid and other assets                                                  (142)               (1,437)
     Accounts payable and other liabilities
                                                                             (1,727)               (6,870)
                                                               ------------------------------------------
Net cash provided by operating activities                                     6,252                 2,590

Investing activities
Purchases of property, plant and equipment                                      (86)                 (894)
Proceeds from sale of property, plant and equipment
                                                                                  1                 1,490
                                                               ------------------------------------------
Net cash (used in) provided by investing activities
                                                                                (85)                  596

Financing activities
Net payments from revolving credit                                           (5,838)               (2,638)
Payments on long-term debt                                                     (203)                 (175)
Investment in joint venture                                                       -                (1,154)
Capitalized loan costs                                                          (77)                 (342)
                                                               ------------------------------------------
Net cash used in financing activities                                        (6,118)               (4,309)

Increase (decrease) in cash and cash equivalents
                                                                                 49                (1,123)
Cash and cash equivalents at beginning of period
                                                                                162                 1,434
Cash and cash equivalents at end of period                                  $   211               $   311
                                                               ==========================================
</TABLE>

See condensed notes to consolidated financial statements.

5
<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------
             CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
             ----------------------------------------------------
                               January 29, 1999


1. Details of certain balance sheet captions at January 29, 1999 and October 30,
   1998 are as follows (in thousands):

<TABLE>
<CAPTION>

INVENTORIES:
                                                            1999                1998
                                                   ----------------------------------------
                                                                 (In Thousands)
<S>                                                       <C>                 <C>
Finished goods                                            $ 2,451             $ 3,338
Goods in process                                            5,545               6,299
Raw materials                                               2,084               2,294
Supplies                                                    2,070               2,017
                                                   ----------------------------------------
Total                                                      12,150              13,948
Less reserves                                                 602                 602
Inventories - net                                         $11,548             $13,346
                                                   ========================================

<CAPTION>

PROPERTY, PLANT AND EQUIPMENT:
                                                             1999                1998
                                                    ----------------------------------------
                                                                 (In Thousands)
<S>                                                       <C>                 <C>
Land and land improvements                                $ 2,220             $ 2,220
Buildings                                                  16,019              16,019
Machinery and equipment                                    60,968              61,022
Construction in progress                                      733                 638
                                                    ----------------------------------------
Total                                                      79,940              79,899
Less accumulated depreciation                              56,062              55,017
Property, plant and equipment - net
                                                          $23,878             $24,882
                                                    ========================================

<CAPTION>

LONG TERM DEBT:
                                                             1999                1998
                                                    ----------------------------------------
                                                                 (In Thousands)
<S>                                                       <C>                 <C>
Term loan with variable interest
                                                          $12,763             $12,966
Less current maturities                                     1,200               1,200
Due after one year                                        $11,563             $11,766
                                                    ========================================

<CAPTION>

SUBORDINATED DEBENTURES:

                                                             1999                1998
                                                    ----------------------------------------
                                                                 (In Thousands)
<S>                                                       <C>                 <C>
Senior Subordinated Debentures, 8-3/4%, due
 August 1, 1999                                           $34,371             $34,371
Subordinated Extendible Debentures, 11%, due
 April 1, 2000 (Series C)                                   2,354               2,354
                                                    ----------------------------------------
Total                                                      36,725              36,725
Less current maturities                                    34,371              34,371
                                                    ----------------------------------------
Due after one year                                        $ 2,354             $ 2,354
                                                    ========================================
</TABLE>


6
<PAGE>

2.  At January 29, 1999, shares of common stock were reserved for possible
    issuance as follows:


      Stock options                                                     858,099
      Stock options granted to entities
        affiliated with certain Company
        former executive officers.                                    1,200,000
      1990 Executive Stock Purchase Plan                                283,892
      Directors' Deferred Stock Compensation Plan                        57,153
      Total                                                           2,399,144
                                                            ===================

3.  At the end of the 1999 first fiscal quarter, the Company was in violation of
    the August 28, 1998 credit and term loan facility's debt service coverage
    ratio, minimum capital funds requirement, and non-payment of certain real
    property taxes and equipment operating leases. On February 25, 1999, the
    Company entered into a Forbearance Agreement which provided that during the
    forbearance period defined as February 25 through May 28, 1999, the credit
    facility lenders would not, solely by reason of the defaults noted, exercise
    any right or remedy available upon default other than those expressly set
    forth in the Forbearance Agreement. The Forbearance Agreement (a) revised
    the Borrowing Base definition to include a reserve for certain real property
    taxes, (b) replaced the debt service coverage ratio and minimum capital
    funds requirement with an EBITDA financial requirement, and (c) expanded
    periodic reporting requirements.

    The Forbearance Agreement was conditioned on the deferral of interest and
    principal payments due by the Company on its subordinated debentures and the
    receipt of $1.5 million in cash, representing the net proceeds of a
    subordinated loan made by Moore Assets International Limited ("MAI"). In
    addition, the Forbearance Agreement required that the net proceeds from the
    MAI subordinated loan to be applied to the revolving credit line and the
    Company is prohibited from payment of interest or principal on the MAI
    subordinated loan.

    Subsequent to yearend, the Company failed to (a) make the February 1, 1999
    interest payment due on the 8-3/4% Debentures which approximated $1.5
    million, (b) make the April 1, 1999 interest payment due on the Series C
    Debentures which approximated $153,000, and (c) honor the approximately $1.5
    million in Series C Debentures put to the Company for redemption at the
    option of Series C Debenture holders.


9
<PAGE>

In May 1999, certain executive officers and entities affiliated with those
officers sold their combined interest approximating 23% of the Company's common
stock outstanding to Whitecross Limited, a Bahamas holding company. In
conjunction therewith, Mr. Richard L. Kramer resigned as a director and Chairman
of the Board of Directors. In addition, Mr. William L. Remley resigned as Chief
Executive Officer, director, and Vice Chairman of the Board. The Board named Mr.
Andrew J. Parise, Jr. as Chairman of the Board of Directors and Chief Executive
Officer in addition to his responsibilities as President and Chief Operating
Officer.

In May 1999, the Company reached a settlement with Mentmore Holdings Corporation
("Mentmore"), an entity affiliated with certain of the Company's former
executive officers whereby after August 1, 1998, the Company would receive
management consulting services from and would provide office space and
administrative services to Mentmore at no charge. The Company agreed to pay
Mentmore approximately $56,000, representing the net amount due to Mentmore for
management consulting services received and office space and administrative
services provided prior to August 1, 1998. Mentmore deferred payment of this
obligation without interest until July 31, 1999.

At the end of the 1999 second fiscal quarter, the Company was in violation of
the February 25, 1999 credit and term loan facility's Forbearance Agreement's
EBITDA financial requirement and failure to pay interest on the 8-3/4%
Debentures and Series C Debentures and to honor the Series C Debentures put to
the Company for redemption on April 1, 1999. On May 28, 1999, the Company
negotiated Amendment Number 1 to the Forbearance Agreement and Amendment Number
3 to the Loan Agreement (the "Amendment"). The Amendment (a) reduced the credit
facility from $40.0 million to $30.0 million, (b) revised the period end EBITDA
financial requirements, (c) limited Borrowing Base availability on specific in-
house trade accounts receivable customers, and (d) increased applicable interest
rate margins.

The Amendment extends the initial Forbearance period by 120 days through
September 28, 1999. The extension period is separated into two sixty day
periods, each contingent upon the Company raising an additional $1.0 million in
subordinated financing. The first extension period runs through July 28, 1999
pursuant to the May 28, 1999 receipt of $1.0 million in cash, representing the
net proceeds of a subordinated loan made by MAI. In addition, the Amendment
required that the net proceeds from this MAI subordinated loan similarly be
applied to the revolving credit line and the Company is prohibited from payment
of interest or principal on either MAI subordinated loan.


10
<PAGE>

4.   Basic net loss per share was determined by dividing net loss by the
     weighted average number of shares outstanding during each year.  Diluted
     net loss per share reflects the potential dilution that could occur
     assuming conversion or exercise of all convertible securities and issued
     and unexercised stock options. Options to purchase shares of common stock
     were not included in the computation of diluted net loss per share because
     the options' exercise price was greater than the average market price of
     the common shares and, therefore, the effect would be antidilutive.

5.   The preparation of consolidated financial statements in conformity with
     generally accepted accounting principles requires management to make
     estimates and assumptions that affect the amounts reported in these
     consolidated financial statements and accompanying footnotes.  Actual
     results may differ from those estimates and assumptions.


11
<PAGE>

Item 2.  Management's Discussion and Analysis of Financial
         Condition and Results of Operations



RESULTS OF OPERATIONS
=====================

     Net sales for the thirteen weeks ended January 29, 1999 decreased to
$27,192,000 as compared to net sales of $41,776,000 for the thirteen weeks ended
January 30, 1998.  This $14,584,000 (34.9%) decrease resulted from lower sales
volume at the Company's Blends operations which was primarily attributable to
unusually high imports of competing fabrics and finished apparel from Asia into
the United States' markets, specifically the Company's missy and junior wear
markets.

     For the comparable thirteen-week period, cost of goods sold, as a
percentage of net sales, increased 5.4% from 87.4% in 1998 to 92.8% in 1999. The
first quarter 1999 increase was caused primarily by fixed manufacturing costs
increasing as a percentage of net sales while the Company operated at a reduced
schedule in order to avoid increasing inventory levels to accommodate the
December holiday season and lower January orders as compared to the prior year.

     Selling, general and administrative expenses ("SG&A") increased from 6.9%
to 8.6% as a percentage of net sales for the thirteen weeks ended January 29,
1999 as compared to the same period in 1998. The increase reflected fixed costs
that were spread over the declining sales volume.

     Interest expense for the first quarter of 1999 remained consistent at $2.2
million as compared to the first quarter of 1998.

On December 18, 1997 the Company divested its interest in the joint venture
Rival Sport, LLC ("Rival") by selling its 50% ownership interest to an entity
affiliated with certain of the Company's then executive officers.  The Company
received a secured $4.5 million ten-year note which bore interest at 5.0% per
annum, payable at maturity. In the first quarter of fiscal 1998, the Company
determined that as a result of continued and anticipated future losses at Rival
and in light of the terms of the note there had been a permanent impairment to
its net investment in Rival and accordingly recorded an additional $1.1 million
impairment against its net investment in Rival, thus reserving the full value of
the note.  Subsequent to the end of the first fiscal quarter 1999, management
was informed that the note may be of no collectible value.



12
<PAGE>

Financial Condition:

     During 1999 and 1998, the Company's business exhibited seasonality,
primarily due to temporary plant shutdowns during the Christmas/New Year's
holiday season. As a result, sales have generally been lower in the first
quarter of the fiscal year than in subsequent quarters while cash requirements
increase due to the seasonal timing of certain cash payments.

     As of January 29, 1999, the Company's working capital showed a deficit of
$24.8 million; a decrease of $7.8 million from October 30, 1998.  This decrease
is due primarily to reductions in receivables of $7.7 million and inventory of
$1.8 million which more than offset decreases in accounts payable and accrued
expenses of  $1.7 million.

     During the first fiscal quarter of 1999, operating activities generated net
cash of $6.3 million.  This cash was generated as a result of the $2.6 million
net loss adjusted for depreciation and amortization of $1.2 million, together
with a decrease in accounts receivable of $7.7 million and inventories of $1.8
million which offset increases in prepaid and other assets of $142,000 and
decreases in accounts payable and other liabilities of $1.7 million. Cash flow
from operations provided funds to repay long-term debt of $203,000, purchase
property, plant and equipment totaling $85,000, pay loan amendment costs of
$77,000 and reduce the revolving line of credit $5.8 million.

     At the end of the 1998 second fiscal quarter, the Company was in violation
of its amended and restated March 15, 1996 credit facility's financial ratios
and minimum availability requirement. On June 5, 1998, the Company entered into
a Forbearance Agreement which provided that during the forbearance period
defined as June 5 through July 24, 1998, the credit facility lenders would not,
solely by reason of the defaults noted, exercise any right or remedy available
upon default other than those expressly set forth in the Forbearance Agreement.
The Forbearance Agreement was conditioned on the deferral of management fees to
an entity owned by certain Company executive officers and the execution by this
entity of a guaranty of secured obligations to the extent of $1.0 million. In
consideration, the entity received from the Company a ten-year option to
purchase 600,000 shares of common stock and an amendment of the purchase price
and option period related to that entity's previous option to purchase 600,000
shares of common stock.


13
<PAGE>

Financial Condition-continued

  On August 28, 1998, the Company entered into a $40.0 million credit facility
that expires on August 31, 2000. Net proceeds of $22.8 million from the credit
facility were applied toward repayment of the previous revolving credit line.
The credit facility is secured by a first lien on substantially all of the
Company's working capital assets and a second lien on substantially all of the
Company's property, plant and equipment. The second lien position is subordinate
to the security interests of Back Bay Capital, LLC securing the term loan
entered into on August 28, 1998 and as more fully described below. The credit
facility currently provides for the Company to elect interest rates based upon a
Eurodollar or prime interest rate plus applicable margin. In addition, the
Company may choose interest periods of 1, 2, 3 or 6 months with respect to its
Eurodollar rate elections. As of January 29, 1999, funds available under the new
credit facility, which represents the difference between the Borrowing Base as
defined by the facility agreement and the revolving credit line outstanding,
approximated $1.2 million.

  On August 28, 1998, the Company also entered into a $13.0 million term loan
with Back Bay Capital, LLC.  The $12.6 million in net proceeds from the term
loan were applied toward the term loan ($8.0 million) outstanding under the
previously existing credit facility and revolving credit line ($4.6 million) of
the new credit facility. The new term loan is payable in 23 equal monthly
installments of $100,000 beginning October 1, 1998 with a balloon payment on
August 31, 2000. The term loan is secured by a first lien on substantially all
of the Company's property, plant and equipment, with a second lien on
substantially all of the Company's working capital assets.  The second lien is
subordinate to the aforesaid revolving credit facility's security interest.  The
term loan provides for interest on the unpaid principal balance at 12.0% per
annum payable monthly in arrears. There is an additional provision for 3.0% per
annum interest that is accrued and added to the unpaid principal balance monthly
in arrears.

  Both the credit and term loan facilities place limitations on the Company's
rental expense, additional indebtedness, acquisitions, capital expenditures,
payment of subordinated debentures, and sale or disposal of assets.  The Company
is required to maintain minimum capital funds and comply with a debt service
coverage ratio, each as defined by the facilities. In addition, the Company is
required to consummate an exchange offer with the holders of not less that $27.1
million in principal of its 8-3/4% Senior Subordinated Debentures due August 1,
1999 on or before April 30, 1999 on terms as set forth in the facilities.



14
<PAGE>

Financial Condition-continued

    At the end of the 1999 first fiscal quarter, the Company was in violation of
the August 28, 1998 credit and term loan facility's debt service coverage ratio,
minimum capital funds requirement, and non-payment of certain real property
taxes and equipment operating leases.  On February 25, 1999, the Company entered
into a Forbearance Agreement which provided that during the forbearance period
defined as February 25 through May 28, 1999, the credit facility lenders would
not, solely by reason of the defaults noted, exercise any right or remedy
available upon default other than those expressly set forth in the Forbearance
Agreement.  The Forbearance Agreement (a) revised the Borrowing Base definition
to include a reserve for certain real property taxes, (b) replaced the debt
service coverage ratio and minimum capital funds requirement with an EBITDA
financial requirement, and (c) expanded periodic reporting requirements.

    The Forbearance Agreement was conditioned on (a) the deferral of interest
and principal payments due by the Company on any of its subordinated debentures
and (b) the receipt of $1.5 million in cash, representing the net proceeds of a
subordinated loan made by Moore Assets International Limited ("MAI"), a company
organized under the International Business Companies Act of the Commonwealth of
the Bahamas. In addition, the Forbearance Agreement required that the net
proceeds from the MAI subordinated loan be applied to the revolving credit line
and the Company is prohibited from payment of interest or principal on the MAI
subordinated loan.

    At the end of the 1999 second fiscal quarter, the Company was in violation
of the February 25, 1999 credit and term loan facility's Forbearance Agreement's
EBITDA financial requirement and failure to pay interest on the 8-3/4%
Debentures and Series C Debentures and Series C Debentures put to the Company
for redemption on April 1, 1999. On May 28, 1999, the Company negotiated
Amendment Number 1 to the Forbearance Agreement and Amendment Number 3 to the
Loan Agreement (the "Amendment"). The Amendment (a) reduced the credit facility
from $40.0 million to $30.0 million, (b) revised the period end EBITDA financial
requirements, (c) limited Borrowing Base availability on specific in-house trade
accounts receivable customers, and (d) increased applicable interest rate
margins. The Amendment extends the initial Forbearance period by 120 days
through September 28, 1999. The extension period is separated into two sixty day
periods, each contingent upon the Company raising an additional $1.0 million in
subordinated financing. The first extension period runs through July 28, 1999
pursuant to the May 28, 1999 receipt of $1.0 million in cash, representing the
net proceeds of a subordinated loan made by MAI. In addition, the Amendment
required that the net proceeds from this MAI subordinated loan similarly be
applied to the revolving credit line and the Company is prohibited from payment
of interest or principal on either MAI subordinated loan.



15
<PAGE>

Financial Condition-continued

    As of January 29, 1999, the Company had outstanding approximately $34.4
million of its Senior Subordinated Debentures due August 1, 1999 ("8-3/4%
Debentures"). The 8-3/4% Debentures, which cannot be called prior to their
maturity date, are unsecured obligations. These debentures contain covenants
that place limitations on the use of proceeds from disposal of assets and on the
incurrence of additional indebtedness and senior indebtedness (as defined in the
governing indenture) if such indebtedness would exceed stated ratios of
capitalization and earnings after such incurrence. The debenture definition of
indebtedness does not include revolver credit line borrowings or operating lease
obligations.  The Company was prohibited from incurring additional indebtedness.

    In August 1998, the Company executed a Third Supplemental Indenture whereby,
the requisite 8-3/4% Debenture holders waived the restriction on the incurrence
of additional indebtedness with respect to both the August 28, 1998 Revolving
Credit Facility and Term Loan and Security Agreements referred to above and
eliminated the monthly $600,000 sinking fund deposits which were scheduled to
begin on the last business day of September 1998.

    Subsequent to yearend, the Company failed to make the February 1, 1999
interest payment due on the 8-3/4% Debentures which approximated $1.5 million.

    As of January 29, 1999, the Company had approximately $2.4 million of its
Series C Debentures due April 1, 2000. The annual interest rate of the Series C
Debentures may be adjusted at the sole discretion of the Company on each April 1
until maturity in 2000. The Series C Debentures are redeemable on April 1, 1999,
in whole or in part, at the option of the holder or the Company for the
principal amount thereof plus accrued interest through the date of redemption.

    Subsequent to yearend, the Company failed to make the April 1, 1999
interest payment due on the Series C Debentures which approximated $153,000 and
failed to honor the approximately $1.5 million in debentures put to the Company
for redemption at the option of Series C Debenture holders.


16
<PAGE>

     Management believes that cash flows from operations and funds available
under the current revolving credit line may not provide the Company with
sufficient funds to meet its fiscal 1999 cash needs, assuming no significant
improvement in current market conditions or interest rates. Management,
therefore, intends to explore various alternatives to the need for additional
working capital, including the possibility of filing for a reorganization under
the United States Bankruptcy code and /or raising additional capital from third
parties. Because the Company's recurring losses from operations and net capital
deficiency raise substantial doubt about its ability to continue as a going
concern, Ernst & Young, the Company's independent auditors issued a going
concern opinion on the Company's 1998 consolidated financial statements.

Forward Looking Information:
----------------------------

    Statements contained in the foregoing discussion and elsewhere in this
report that are not based on historical fact are considered "forward looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995. These statements are based on management's present assumptions as to
future trends, and changes in current economic trends, prevailing interest
rates, availability and cost of raw materials, laws affecting the Company's
business and similar factors could affect the validity of such assumptions.


17
<PAGE>

                          PART II.  OTHER INFORMATION
                          ---------------------------


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------

  (a) Exhibits

         Exhibits to this report are listed in the accompanying index to
exhibits.

  (b) Reports on Form 8-K

         No reports on Form 8-K were filed during the quarter ended January 29,
1999.



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<PAGE>

                                  SIGNATURES
                                  ----------

     Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

                              TEXFI INDUSTRIES, INC.
                                   (Registrant)



Date:  June 7, 1999           By:/S/Robert P. Ambrosini
                                  ---------------------------------
                                    Robert P. Ambrosini
                                    Chief Financial Officer and
                                    Executive Vice President
                                   (Principal Accounting Officer)




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<PAGE>

                            TEXFI INDUSTRIES, INC.
                            ----------------------
                               INDEX TO EXHIBITS
                               -----------------

*3(a)(1)  Restated Certificate of Incorporation of Registrant dated August 13,
          1969, filed as Exhibit (3)(a)(1) to Registrant's Form 10-K Annual
          Report for the fiscal year ended October 31, 1980.

*3(a)(2)  Certificate of Amendment of Certificate of Incorporation of Registrant
          dated March 16, 1972, filed as Exhibit (3)(a)(2) to Registrant's Form
          10-K Annual Report for the fiscal year ended October 31, 1980.

*3(a)(3)  Certificate of Amendment of Certificate of Incorporation of Registrant
          dated March 27, 1978, filed as Exhibit (3)(a)(3) to Registrant's Form
          10-K Annual Report for the fiscal year ended October 31, 1980.

*3(a)(4)  Certificate of Amendment of Certificate of Incorporation of Registrant
          dated May 19, 1986, filed as Exhibit 4.4 to Registrant's Form S-8
          Registration Statement (No. 33-14697).

*3(a)(5)  Certificate of Amendment of Certificate of Incorporation of Registrant
          dated March 20, 1987, filed as Exhibit 4.5 to Registrant's Form S-8
          Registration Statement (No. 33-14697).

*3(a)(6)  Certificate of Amendment of Certificate of Incorporation of Registrant
          dated September 28, 1987, filed as Exhibit 4(a)(6) to Registrant's
          Form S-2 Registration Statement (No. 33-16794).

*3(a)(7)  Certificate of Designations of Registrant dated November 20, 1987,
          filed as Exhibit 4(a)(7) to Registrant's Form S-2 Registration
          Statement (No. 33-16794).

*3(a)(8)  Certificate of Designations of Registrant dated March 8,1988 filed as
          Exhibit 4(a)(8) to Registrant's Form S-2 Registration Statement (No.
          33-20131).

*3(a)(9)  Certificate of Designations of Registrant dated August 4 1988, filed
          as Exhibit 4(d)(9) to Registrant's Form 10-Q Quarterly Report for the
          fiscal quarter ended July 29, 1988.

*3(b)(1)  Bylaws of Registrant, filed as Exhibit 4.6 to Registrant's Form S-8
          Registration Statement (No. 33-14697).

*3(b)(2)  Amendment to Bylaws of Registrant, filed as Exhibit 4(b)(2) to
          Registrant's Form S-2 Registration Statement (No. 33-16794).
<PAGE>

*3(b)(3)  Amendment to Bylaws of Registrant adopted by Registrant's Board of
          Directors on January 18, 1991, filed as Exhibit 3(b)(3) to
          Registrant's Form 10-K Annual Report for the fiscal year ended
          November 2, 1990.

*3(b)(4)  Amendment to Bylaws of Registrant adopted by Registrant's Board of
          Directors on August 31, 1994, filed as Exhibit 4(b)(4) to Registrant's
          Form 10-Q Quarterly Report for the fiscal quarter ended July 29, 1994.

*3(b)(5)  Amendment to Bylaws of Registrant adopted by Registrant's Board of
          Directors on September 7, 1994, filed as Exhibit 4(b)(5) to
          Registrant's Form 10-Q Quarterly Report for the fiscal quarter ended
          July 29, 1994.

*4(a)(1)  Indenture between Registrant and Rhode Island Hospital Trust National
          Bank, Trustee, with a copy of Subordinated Debentures due April 1,
          1995, Series A, Subordinated Debentures due April 1, 1995, Series B
          and Subordinated Extendible Debentures due April 1, 2000, Series C
          attached, filed as Exhibit 4(f) to Registrant's Form S-2 Registration
          Statement (No. 33-32485).

*4(a)(2)  Indenture dated September 8, 1993 between Registrant and The First
          Union National Bank of North Carolina, Trustee, with copy of 8-3/4%
          Senior Subordinated Debenture due August 1, 1999, filed as Exhibit
          4(c)(2) to Registrant's Form 10-Q Quarterly Report for the fiscal
          quarter ended July 30, 1993.

*4(a)(3)  First Supplemental Indenture dated as of March 10, 1995, between
          Registrant and First Union National Bank of North Carolina, as
          Trustee, filed as Exhibit 4(a)(1) to Registrant's Form 8-K Current
          Report as of March 15, 1996.

*4(a)(4)  Second Supplemental Indenture dated as of March 15, 1996, between
          Registrant and First Union National Bank of North Carolina, as
          Trustee, filed as Exhibit 4(a)(2) to Registrant's Form 8-K Current
          Report as of March 15, 1996.

*4(a)(5)  Tripartite Agreement dated as of August 14, 1998, between Registrant,
          First Union National Bank, formerly known as First Union National Bank
          of North Carolina, as Initial Trustee, and Norwest Bank, Minnesota,
          National Association, as successor Trustee filed as Exhibit 4(a)(5) to
          Registrant's Form 10-Q Quarterly Report for the fiscal quarter ended
          July 31, 1998.

*4(a)(6)  Third Supplemental Indenture dated as of August 28, 1998, between
          Registrant and Norwest Bank, Minnesota, National Association, as
          successor Trustee filed as Exhibit 4(a)(6) to Registrant's Form 10-Q
          Quarterly Report for the fiscal quarter ended July 31, 1998.

*4(b)(1)  Specimen Common Stock ($1 par value) certificates, filed as
          Exhibit 4.01 to Amendment No. 2 to Registrant's


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<PAGE>

          Form S-1 Registration Statement (No. 2-41653).

*4(d)(1)  Amended and Restated Loan and Security Agreement dated December 19,
          1997 to the Credit Agreement dated March 15, 1996 among Registrant, as
          Borrower, the Financial Institutions referred to therein, and
          BankBoston, N.A., as Agent filed as Exhibit 4(d)(14) to Registrant's
          Form 10-K for the fiscal year ended October 31, 1997.

*4(d)(2)  Forbearance Agreement dated June 5, 1998 among Registrant, as
          Borrower, the Financial Institutions referred to therein, and
          BankBoston, N.A., as Agent, filed as Exhibit 4(d)(15) to Registrant's
          Form 10-Q filed for the fiscal quarter ended May 1, 1998.

*4(d)(3)  Forbearance Agreement Extension dated July 21, 1998 among Registrant,
          as Borrower, the Financial Institutions referred to therein, and
          BankBoston, N.A., as Agent, filed as Exhibit 4(d)(16) to Registrant's
          Form 10-Q filed for the fiscal quarter ended July 30, 1998.

*4(d)(4)  Forbearance Agreement Extension dated August 21, 1998 among
          Registrant, as Borrower, the Financial Institutions referred to
          therein, and BankBoston, N.A., as Agent, filed as Exhibit 4(d)(17) to
          Registrant's Form 10-Q filed for the fiscal quarter ended July 30,
          1998.

*4(d)(5)  Loan and Security Agreement dated August 28, 1998 among Registrant, as
          Borrower, the Financial Institutions referred to therein, and
          BankBoston, N.A., as Agent, filed as Exhibit 4(d)(18) to Registrant's
          Form 10-Q for the fiscal quarter ended July 30, 1998.

*4(d)(6)  Term Loan and Security Agreement dated August 28, 1998 among
          Registrant, as Borrower and Back Bay Capital LLC, filed as Exhibit
          4(d)(19) to Registrant's Form 10-Q filed for the fiscal quarter ended
          July 30, 1998.

*4(d)(7)  Ledger Debt Payment Agreement dated August 28, 1998 among Registrant,
          as Borrower and the CIT Group/Commercial Services, Inc., filed as
          Exhibit 4(d)(20) to Registrant's Form 10-Q for the fiscal quarter
          ended July 30, 1998.

*4(d)(8)  Forbearance Agreement dated February 25, 1999 among Registrant, as
          Borrower, the Financial Institutions referred to therein, and
          BankBoston, N.A., as Agent, and Back Bay Capital LLC, filed as Exhibit
          4(d)(13) to Registrant's Form 10-K Annual Report for the fiscal year
          ended October 30, 1998.


22
<PAGE>

*4(d)(9)  Subordinated note dated February 26, 1999 between Registrant, as
          payor, and Moore Assets International Limited, filed as Exhibit
          4(d)(14) to Registrant's Form 10-K Annual Report for the year ended
          October 30, 1998.

4(d)(10)  Amendment Number 1 to Forbearance Agreement and Amendment Number 3 to
          Loan Agreement dated May 28, 1999 among Registrant, as Borrower, the
          Financial Institutions referred to therein, and BankBoston, N.A., as
          Agent, and Back Bay Capital LLC.


* Incorporated by reference to previous filing.



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